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Edward Jones financial advisors have been talking to investors for a year about the likelihood of upcoming market volatility. Now, they are shifting their focus to helping them plan for it.

In a survey released last month, the St. Louis-based financial services firm found 64 percent of Americans are concerned about a stock market decline in the next 12 months, but 55 percent said they would not adjust their portfolios if the market declined 10 percent or more.

Kate Warne, Edward Jones principal and investment strategist, said this is an encouraging sign because clients making “emotional decisions” to sell can negatively impact the market.

“It's important to remember that markets naturally peak and dip over time, fluctuating much more frequently than the U.S. economy,” she said. “Having a well-diversified portfolio will work to hedge against market volatility, lessening the impact of inevitable corrections.

“Most people are expecting volatility, which is something our financial advisors have been talking about for a year to prepare clients. Now, we need to talk less about expecting it and more about taking the right actions.”

Warne came to Grand Rapids from Oct. 4-5 to speak to investors in the region on the outlook for U.S. and international markets, economic growth, possible impacts of the Trump administration’s policy changes and what investors need to do to prepare for them.

While at the meeting, she updated the investors on the volatility survey, which polled a nationally representative sample of 1,006 respondents — clients and nonclients — from Aug. 24-27.

In the event of a market correction, 33 percent of respondents said they believe their retirement portfolio is not diversified enough to live comfortably in retirement. Thirty-seven percent of millennials, the group farthest from retirement, were as worried about their ability to retire as baby boomers (35 percent) and Generation X (32 percent).

Scott Thoma, principal and retirement strategist for Edward Jones, said the retirement concern is best addressed by re-evaluating investment portfolios.

“Especially as investors approach their retirement, it’s critical to review their investments to ensure they are appropriately balanced relative to their income needs and comfort with risk, as well as ensure they have enough cash to cover their near-term spending needs,” he said. “This will help ensure that in the event of any unexpected market volatility, drastic changes will not be needed.”

Warne said the feedback she heard from Grand Rapids investors indicated they were aware of the need to diversify heading into a market fluctuation, but she always considers the possibility people don’t necessarily follow through on plans when the wind shifts.

“Because it’s been such a long period of time since markets pulled back 10 percent — it’s been almost two years — we are worried clients will be surprised when one happens, and while they plan to stay invested, they may react emotionally and think about selling,” she said.

“That’s why we’re taking a little extra time and effort to talk about what volatility is and to try to help clients prepare their portfolios to reduce the chances of that behavior.”

Warne said during the Q&A portion of her presentation, business owners expressed concern over whether the economy will continue the strong growth trend of the past 18 months.

“We think it’s picking up a little speed but won’t be stronger than it has been,” she said. “At the same time, we don’t see any signs of recession ahead.”

Warne said Edward Jones believes the current U.S. economy growth rate of 2 to 2.5 percent could be helped along by the Trump administration’s proposed tax cuts — while other investment strategists, such as David Kelly at JPMorgan Funds, have warned that cutting the corporate tax rate from 35 percent to 20 percent could create a massive bubble in the stock market, and the loss of tax revenue would substantially increase the federal deficit.

Kelly told CNN Money in a recent report that if the tax cuts were to play out, The Fed might be forced to raise interest rates much more quickly than planned, thereby skyrocketing inflation.

Warne said she is not overly concerned about that possibility.

“We think The Fed will raise interest rates, but the pace will be slow and cautious. So, (investors) should expect rising interest rates, but not a dramatic increase.

“That’s also true for long-term interest rates because we think inflation will rebound, but not a lot.”

Either way, she is paying attention to the possibility.

“If (inflation) rises a lot more than is expected, more than the 2 percent target The Fed is looking for, it would raise interest rates rapidly and change conditions that would affect businesses in this area,” Warne said.

“We’re not worried about it, but I always try to say there’s one thing I’m watching.”

Warne said with the U.S. dollar weaker, it’s a good time for businesses to think about global expansions.

“If (companies) were considering expansion and markets in the rest of the world, there are sales opportunities there,” she said. “The lower dollar helps their competitiveness, and the stronger growth improves their opportunity to win business abroad.”

On the domestic side, she said the possibility of regulatory relief has CEOs feeling optimistic.

“That’s largely due to greater confidence they won’t see new regulations that make investment unprofitable,” Warne said. “We’ve seen an uptick in business investment, putting money to work.”

She said Edward Jones investors have been hopeful about President Donald Trump’s pledge to create more jobs by investing in infrastructure, but she sees it as unlikely to pan out.

“While everyone agrees that’s a great idea to invest in airports, roads and bridges, it will raise the deficit, and that aids economic growth short term, but we will have to pay for it at some point in the future,” Warne said.

She said Grand Rapids investors were mainly concerned, not necessarily about the economy’s short-term growth rate, but about whether it can sustain long-term job growth and wage increases.

“We think wages will go up but not dramatically,” she said.

The U.S. Bureau of Labor Statistics jobs report released Oct. 6 reflects sharp employment declines in food services and drinking establishments and below-trend growth in other industries, mostly due to the impacts of hurricanes Harvey and Irma.

Warne said overall job growth is expected to remain steady.

“I think across the board, Grand Rapids is consistent with the rest of the country and continuing to be optimistic over the next 18 months,” she said.

Rachel Watson is a Grand Rapids Business Journal staff reporter who covers food, manufacturing, small business, banking and finance, HR and diversity and sustainability. Email Rachel at rachelw at grbj dot com. Follow her on Twitter @RachelWatson86

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